Eavex Capital Research: Ukrainian Eurobonds weekly comment

Quotes for Ukrainian sovereign Eurobonds rebounded somewhat last week after 3 previous weeks of decline. The situation on the global bond market encouraged investors to look at EM bonds, as the US yield curve reached its flattest level in more than a decade amid the probability that the Federal Reserve will raise short-term interest rates twice more in 2018. The spread between 5-year and 30-year Treasury yields fell to just 22 basis points, the tightest since July 2007, while the gap between 2-year and 10-year yields touched 29 bps, the narrowest since August 2007, Reuters data showed.

In major Ukraine developments, there was a new proposal from the government to the IMF regarding terms of the long-delayed USD 1.9bn loan tranche. Kyiv asked for a compromise in the negotiations over natural gas prices, which envisages a package of steps, including monetization of subsidies, further liberalization of the gas market, and a discount from the single price of gas for household consumers. The IMF has been demanding that Ukrainian authorities to switch to economically justified prices for natural gas for households since the USD 17.5bn support program for the country was approved in 2015.

The benchmark issue, Ukraine-27s, recovered 2.3% to close at 93.6/94.6 (8.8%/8.6%) and medium-term Ukraine-23s rose 1.2% to 97.2/98.0 (8.4%/8.2%). The VRI derivatives (linked to Ukraine’s future GDP growth with expiration in 2040) declined by 1.0% to 62.3/63.2 cents on the dollar.

Corporate Ukrainian Eurobonds did not latch onto the gain in sovereigns. Metinvest-26s declined by 1.1% to 91.8/92.7 (10.0%/9.9%), while MHP-26s shed 1.3% to 92.2/92.7 (8.3%/8.2%).

The quasi-sovereign Eurobonds of state-owned OschadBank with maturity in 2025 declined by 0.9% to 99.3/99.8 (9.8%/9.7%) despite positive news that Parliament passed a law requiring state-owned banks to appoint a majority of independent members to their supervisory boards.